Euro-Area Inflation Unexpectedly Slowed in January on Energy

The euro-area inflation rate
unexpectedly fell in January as high unemployment and austerity
measures across the 17-nation currency bloc damped demand.

The annual inflation rate dropped to 2 percent from 2.2
percent a month earlier, the European Union’s statistics office
in Luxembourg said today. Economists had forecast the rate to
remain unchanged, according to the median of 39 estimates in a
Bloomberg News survey.

The European Central Bank will leave its benchmark interest
rate unchanged at 0.75 percent next week, economists forecast in
a separate Bloomberg News survey. The central bank sees
inflation at 1.6 percent this year and 1.4 percent in 2014. The
euro-area jobless rate remained unchanged in December at 11.7
percent, a second EU report today showed.

“The data isn’t too surprising as the impact of sales in
January on retail prices and oil price fluctuations are always
difficult to predict,” said Dominique Barbet, senior economist
at BNP Paribas in Paris. “Slowing inflation across the euro
zone reflects a general slackening of activity with a marked
deterioration in France as it joins the countries where deep
budget cuts are weighing on growth.”

Energy prices increased 3.9 percent in January after a 5.2
percent gain a month earlier, today’s report showed. Prices of
food, alcohol and tobacco rose 3.2 percent, the same as in
December, while the cost of services rose 1.7 percent after a
1.8 percent gain.

ECB Forecast

The euro-area economy has shrunk for two successive
quarters and economists foresee a further decline in gross
domestic product in the final three months of last year. The ECB
estimates contractions of 0.5 percent and 0.3 percent in 2012
and 2013. The ECB this week said lending to households and
companies shrank for an eighth month in December.

Several countries this week reported inflation eased more
than forecast during the first month of the year. The rate in
Europe’s largest economy slowed to 1.9 percent from 2 percent in
December, according to the German Federal Statistics Office,
while it fell to the slowest pace since August in Spain.

The euro-area unemployment rate held at 11.7 percent as the
November rate was revised down to 11.7 percent from 11.8 percent
reported earlier. Economists had forecast an increase to 11.9
percent, the median estimate in a Bloomberg News survey of 34
economists.

Youth Unemployment

Today’s report showed that 18.7 million people were
unemployed in the euro area in December, “nearly stable” from
the previous month. The data also showed that youth unemployment
is at 24 percent, with Spain’s rate more than double that, at
55.6 percent.

At 26.1 percent, Spain also had the highest overall jobless
rate in the currency bloc among those countries reporting
December data. Portugal’s unemployment rate was at 16.5 percent,
while Ireland reported a jobless rate of 14.7 percent. Germany’s
jobless rate was 5.3 percent and France’s stood at 10.6 percent.
Austria had the lowest rate at 4.3 percent.

“January’s fall in euro-zone inflation is good news for
consumers, but with unemployment still at a record high in
December, incomes and spending will remain under severe
strain,” Ben May, a European economist at Capital Economics in
London, wrote in an e-mailed note. “By the middle of the year,
we expect the headline inflation rate to be well below the ECB’s
inflation target.”